OREANDA-NEWS. Fitch Ratings has affirmed Spanish high speed rail infrastructure administrator's - ADIF-Alta Velocidad (ADIF AV) - Long-term foreign and local currency Issuer Default Ratings (IDR) at 'BBB+' and its Short-term foreign and local currency IDR at 'F2'. The Outlook on the Long-term IDRs is Stable.

ADIF AV was created in December-2013 under Royal Decree 15/2013 from the segregation of ADIF (BBB+/F2/Stable) into two companies. ADIF remains responsible for the non-high speed rail network in Spain and receive state subsidies, while ADIF AV is responsible for the maintenance and expansion of the high speed rail network.

ADIF AV's ratings are equalised with those of Spain's IDRs (BBB+/Stable/F2). This reflects the entity's public sector legal status and strong operational and strategic ties with the government, resulting in a high likelihood of extraordinary government support if needed. ADIF AV is therefore classified as a credit-linked entity under Fitch's Public Sector Entity criteria.

KEY RATING DRIVERS

ADIF AV reports directly to the Ministry of Public Works. The state appoints members of the board of Directors and its President (Members of board of directors are appointed by the Minister of Public Works and the President is ADIF's President, according to ADIF AV by-law). While ADIF AV does not have an explicit guarantee, it cannot go bankrupt and if dissolved its assets and liabilities would revert to the state. ADIF AV also cannot be privatised without a change in its legal status.

A large portion of its administrative board is representatives of the Ministries of Public Works, Finance and Economy. Its budget, including debt, is approved by Spanish Parliament at the same time as the central government's budget. In addition, all financial debt contracted requires prior authorisation from Ministry of Finance and the financial debt with non-Spanish residents or bond issuance also requires prior authorisation from the Treasury. ADIF AV is subject to ongoing audit by the General Public Auditor (Intervenci?n General de la Administracion del Estado).

The Ministry of Public Works has mandated ADIF AV to undertake a large investment plan as it expands the high speed rail infrastructure in Spain. Presently the high speed network covers around 2,200 km and a further 2,000 km are in planning and construction stage. Capital expenditure for 2014-2018 is projected to amount to EUR12.0bn, of which around 55% is expected to be funded through debt.

Although ADIF AV is projected to incur losses in the near term, it will have positive EBIDTA margins due to a large depreciation charge. Overall deficit will be partly compensated by state capital injections projected at around EUR2.7bn for the 2014-18 period.

ADIF AV's debt stood at EUR13.8bn at end-2014, including EUR12.05bn debt transferred from the former ADIF (around 95% of ADIF's total debt). Around 71% of the debt is with the European Investment Bank. As such the debt profile is rather long in maturity and the debt repayment calendar is well balanced over the next 10 years. Fifty-one per cent of the debt outstanding at end-2014 will mature after 2024. Despite an ambitious capital expenditure programme debt growth will be moderate, projected to increase to EUR17.8bn by end-2018 as part of the capital expenditure will be co-funded by EU funds.

RATING SENSITIVITIES

ADIF AV's ratings are credit linked to those of the Spain's. Therefore any rating action on the sovereign would be mirrored in ADIF AV.

A downgrade could also follow if there is a change in the status of ADIF AV or a change in Fitch's assessment of extraordinary support from the state. In addition, a downgrade could result if there is insufficient funding from the state by way of capital injections or subsidies resulting in a sharp decrease of ADIF's total equity.